Umbrella Insurance

Your insurance coverage isn’t determined simply by your total portfolio. It is determined by your potential liability exposure and the amount of financially exposed assets you want to protect. But because you have accumulated substantial assets, the prudent strategy is to use a relatively modest amount of primary insurance plus a large umbrella rather than trying to make the home and auto policies themselves enormous.

And importantly, don’t transfer assets or change your trust structure in an attempt to defeat potential creditors after a claim arises—that can create serious legal problems. Asset-protection trusts are a specialized estate-planning subject and are very different from the ordinary family revocable trust you likely have.

One thing I would specifically ask your insurance broker

Don’t simply ask:

“How much umbrella insurance should I buy?”

Give them your actual situation:

“We’re retiring at 60, have several million dollars of financial assets, substantial home equity, a family trust, and two vehicles. We want to protect our accumulated retirement assets from catastrophic personal liability. Please quote $2M, $3M, $5M and $10M personal umbrella policies and tell us exactly what underlying auto/home limits you require.”

You may discover that going from $3M → $5M costs surprisingly little.

Recommendation

Auto: $500K liability / $100K–$250K property damage
Home: $500K personal liability
Umbrella: $5 million
UM/UIM: as high as reasonably available, preferably ~$500K

One important correction/qualification to my prior answer: a $5M umbrella does not mean $5M is automatically available for every conceivable lawsuit. The actual policy wording, exclusions, underlying limits, covered insureds, and defense provisions matter. California describes umbrella/excess liability as coverage above underlying auto, homeowners, and other liability policies.

The “layer cake”

Think of your protection this way:

Layer 1 — Auto liability

↓

Layer 2 — Homeowners liability

↓

Layer 3 — $5M umbrella

↓

Layer 4 — Your personally exposed assets

That’s why I don’t think you need $5M of auto insurance.

You need enough primary coverage to get cleanly to the umbrella, then the umbrella provides the catastrophic layer.

California itself identifies umbrella/excess insurance as coverage written over underlying auto, homeowners, liability and watercraft policies.

The biggest vulnerability

It’s not actually your umbrella limit.

It’s whether the umbrella is properly constructed.

Ask your broker to confirm all of these in writing:

1. Auto underlying limits

At least: 250/500 and preferably: 500K CSL

if available and economically reasonable.

California’s Department of Insurance lists $100K/$300K bodily injury and $50K property damage as an example of increased standard coverage, illustrating how far above the state minimum prudent coverage can go.

2. Home liability $500K

3. Umbrella $5M

4. UM/UIM strongly consider: $500K

This protects you when the other driver is the problem rather than you.

5. Every driver

Every household driver must be properly disclosed and covered.

6. No problematic exclusions

Ask specifically about:

  • teen/young drivers

  • recreational vehicles

  • rental properties if any

  • watercraft

  • foreign travel

  • libel/slander

  • personal injury

  • volunteer activities

  • home businesses

  • vacant property

  • trusts

  • LLCs

  • domestic employees

Retirement Asset Protection Stack

Auto

  • $500K liability / $500K CSL preferred

  • $100K–$250K property damage

  • ~$500K UM/UIM

Home

  • $500K liability

Umbrella

  • $5M

Michael Wei